MGMT 4010 - CLO2 Part Two - Recognizing the Need for Change PDF

Recognizing a Need or Opportunity for Change CLO2 Objectives  Sources (Triggers) of Change 3 Sources of change Many of the opportunities and threats that trigger change can be found in an organization’s external environment, but some can originate from w...

Recognizing a Need or Opportunity for Change CLO2 Objectives  Sources (Triggers) of Change 3 Sources of change Many of the opportunities and threats that trigger change can be found in an organization’s external environment, but some can originate from within the system itself. ©www.imagesource.com © John Hayes (2018) Triggers (Causes) of Change Internal Factors External Factors Change initiated by the business Change from outside the business Restructuring Social trends / attitudes Mergers and acquisitions Economic conditions New Board of Directors Laws / regulations Changes in organizational vision Technological advances Employee dissatisfaction New competition Organizational growth Industry changes Business unit / department mergers Cost pressures Performance failures Vendor / supplier changes 5 Internal and External Sources of Change External Sources of Change: PEST Analysis PEST is an analytical tool that focuses attention on external factors that can trigger organizational change Political Economic Sociocultural Technological ©www.imagesource.com © John Hayes (2018) Political Factors Definition: Political factors refer to the extent to which government policy and actions intervene in the economy or a specific industry. This includes tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Example: A new government policy increases tariffs on imported goods to protect domestic industries. This change can significantly impact international trade and may benefit local producers while increasing costs for importers. Economic Factors Definition: Economic factors involve economic conditions and trends that can affect an organization's operation and profitability. This includes economic growth, interest rates, exchange rates, inflation, and economic cycles. Example: A recession leads to higher unemployment, reduced consumer spending, and tighter credit conditions. Businesses may see a decline in sales and may need to adjust their strategies to cope with the economic downturn. Social Factors Definition: Social factors analyze the demographic and cultural aspects that affect a company's market. This includes population growth rate, age distribution, career attitudes, health consciousness, and lifestyle changes. Example: An aging population increases the demand for healthcare services and products. Companies in the healthcare industry might see growth opportunities, while those in youth-focused markets might need to reevaluate their strategies. Technological Factors Definition: Technological factors consider the rate of technological innovation and development that could affect a market or industry. This includes R&D activity, automation, technology incentives, and the rate of technological change. Example: The rapid advancement of artificial intelligence technology leads to increased automation in manufacturing. Companies that adopt these technologies may improve efficiency and reduce costs, while those that don't may fall behind. Strebel’s model for managers to anticipate technological and economic changes It emphasizes the importance Strebel's model is designed to of continuous scanning of the help managers anticipate and environment, understanding respond to technological and the forces of change, and economic changes. adapting strategies accordingly. Strebel: Scanning the Environment Identifying Signals: Managers must actively identify early Broad Perspective: Encourages signals of change in technology looking beyond the immediate and the economy, which may industry to understand broader include emerging trends, global and technological innovations, or shifts in trends. consumer behavior. Strebel: Understanding Forces of Change Analyzing Impact: Once Drivers of Change: Scenario Planning: Engaging potential changes are Understanding the drivers in scenario planning to identified, managers need behind these changes, such envision possible futures to analyze their potential as technological and how these changes impact on the organization advancements, regulatory might play out. and industry. shifts, or economic factors. Strebel: Adapting Strategies Innovation and Flexibility and Agility: Experimentation: Encouraging Continuous Learning: Emphasizing the need for a culture of innovation and Committing to ongoing learning strategies that are flexible and experimentation to take and development to stay ahead can quickly adapt to new advantage of new opportunities of changes. information and conditions. and technologies.  Recognizing the need for change: developing a culture of vigilance A failure to recognize external or internal threats or opportunities can lead to internal or external misalignments that undermine organizational effectiveness. However, vigilance can be spoiled by a number of factors such as: o Cognitive biases  retrospective rationality and the need to justify past decisions  short time perspectives that encourage managers to stick with a winning formula for too long (the trap of success) ©Getty © John Hayes (2018)  ©Digital Vision/Getty Images Failure to recognise the need for change in good time promotes a reactive approach to change limits the possibilities for planning and involving others in the change process © John Hayes (2018)  © GETTY Using performance indicators to recognize the need for change Discrepancies between actual and desired performance can signal a need for change But problems can arise when discrepancies are not recognized because managers restrict their attention to a narrow range of indicators Some of the factors that managers need to consider include: © John Hayes (2018) 1. Purpose © GETTY Many commercial organizations use profit as one of the main indicators of effectiveness, but this indicator might not apply to all organizations While financial viability may be necessary for the survival of organizations such as religious orders, universities, hospitals or charities, profit might not be viewed as a critical indicator of effectiveness Indicators of effectiveness need to be related to the purpose of the unit or the organization © John Hayes (2018)  © GETTY 2. Stakeholder perspective Different stakeholders (senior managers, other workers, customers, suppliers, shareholders, local residents, regulatory bodies) may use different indicators to assess the effectiveness of an organization. © John Hayes (2018)  © GETTY 3. Level of assessment Different criteria may be used to assess effectiveness at different levels (individual, work group, department, strategic business unit, total organization). The criteria used to assess effectiveness at individual or department level need to be aligned with those used to assess overall organizational performance. © John Hayes (2018) 4. Alignment across the organization Criteria of effectiveness for each function Purchasing Production Distribution Marketing MINIMISE COST OF MINIMISE COST MINIMISE COST OF & Sales OBTAINING & OF PRODUCING DELIVERING HOLDING REQUIRED LEVEL & REQUIRED OUTPUT ON OUTPUT TO REQUIRED MAXIMISE QUALITY OF INPUTS TIME TO SPECIFIED LOCATIONS AT REQUIRED REVENUES FROM SALES QUALITY TIMES In order to perform effectively, each function might pursue the following objectives: Low procurement Low High product Costs Long production inventories availability & fast runs response Few suppliers Flexible internal Low variety supply Flexible product Low specification to inventories High capacity meet customer utilisation Stable requirements demand No overtime working © John Hayes (2018)  © GETTY 5. Time perspective An organization that is not very profitable today may be incurring higher costs because it is investing in new plant, product development and training to guarantee greater profits over the long term. © John Hayes (2018)  © GETTY 6. External benchmark Performance in one unit may need to be benchmarked against performance elsewhere to assess how effective it is. © John Hayes (2018)  © GETTY 7. Constraints and enabling factors For example, a budget airline’s decision to open a route to one location rather than another might have a positive effect on the performance of the local unit of a car rental firm. But this higher performance may have little to do with factors internal to that unit. This needs to be taken into account when assessing the effectiveness of that unit relative to other units. © John Hayes (2018) Let’s consider the difference between a reactive and proactive approach to change Reactive and Proactive responses to change Firms cannot ignore changes in their Organizations can break out of the external environment forever. pattern of punctuated equilibrium and Eventually they have to adapt if they avoid the need for urgent are to survive. transformational change... By being Proactive and anticipating change and adopting But some firms are slower than others practices that promote continuous to recognise the need for change adaptation. and/or slower than others to take action. Their response is Reactive, rather than proactive. Two Common Approaches for Adapting to Change Punctuated Equilibrium Continuous Incremental Adaptation © John Hayes (2018) 1.Adapting to change: Punctuated Equilibrium Many organizations are slow to adapt to change - It is easier to maintain the status quo The result is a gap (strategic drift) between what the organization is doing and what is happening in the environment. Eventually the gap gets large enough to force the organization to make a radical transformational change.  1.Punctuated Equilibrium Apple product development through Punctuated Equilibrium. Organizations change through alternating of periods of equilibrium, and periods of revolution. © John Hayes (2018)  2.Continuous Incremental Adaptation iPhone product development through Continuous Incremental Adaptation (almost annual improvements). Continuous incremental change – the constant updating of work processes and social practices. helps to maintain alignment with the environment accumulates incremental changes to transform the organization over time Reactive and proactive Approaches: Hotel Example Proactive Approach: Ali, a hotel executive, has learned the number of people who want to travel Reactive approach: with their pets is increasing. Only after many pet-owning guests Ali develops a plan to create pet- were turned away, the hotel friendly rooms in each of his hotel executive considers implementing locations. pet-friendly rooms. He also advertises this new feature, even before travelers begin asking it. https://www.referenceforbusiness.com/management/Pr-Sa/Reactive- vs-Proactive-Change.html#ixzz76wVJJLoz  Consequences of Not Anticipating Change Less time for planning. More difficult to involve people. in the process. Less time to experiment and search for creative solutions. Lack of opportunity to influence markets and technology © John Hayes (2018) Four Change Management Mistakes to Avoid Having the wrong Not listening to team Failing to recognize that Being unwilling to people on the Journey members’ concerns original plans may need consider risks to also Change Summary External sources for change The PEST acronym and Strebel’s cycle of competitive behaviour were introduced as tools that can help managers identify external sources of change. Internal sources Sensing a need for change and formulating a change agenda This begins when individuals notice and respond to what they perceive to be significant external or organizational events. Discrepancies between actual and desired levels of performance signal a need for change but problems can arise when discrepancies are not recognized because attention is restricted to a narrow range of indicators. Some of the indicators that need to be monitored were reviewed. © John Hayes (2018)